5 ms·

When I studied pharmaceutical sciences ten years ago, the rule-of-thumb was that it cost around 1 billion dollars from idea to the product being launched. That'

When I studied pharmaceutical sciences ten years ago, the rule-of-thumb was that it cost around 1 billion dollars from idea to the product being launched. That's only r&d costs and regulations have become stricter over the years, so I imagine the cost has risen since then

beagle3 6y ago
I’ve seen this number with some justification being the amortized cost of a successful product, which covers r&d and marketing but also the failed attempts that lead nowhere in between. There are plenty of 50-100M pharma startups; they wouldn’t exist if your number was right.
- yomly 6y ago
  >There are plenty of 50-100M pharma startups; they wouldn’t exist if your number was right. Isn't there a selection bias in that the startups that got to 50-100M survived because they were lucky with a candidate treatment. The ones that failed were the ones that never found a candidate in time? The difference being that large pharmaceutical companies have to swallow ALL the failures, whereas startups can "just" die. Not to say that pharma companies don't have some fat that can be trimmed...
- Scandiravian 6y ago
  "Pharma start-up" is a broad definition which might not only be drug development and there might already be work done on their product before they look for funding A company that is spun out from a PhD project in a research group, that has done a lot of the groundwork on grants will need less funding Same goes for a start-up that for instance make non-invasive assays for diagnosis, since the documentation requirements are lower for such products Producing something that has to be injected into humans is an entirely different league, since the amount of documentation required for such products is staggering The cost for marketing will vary significantly depending on your definition of the word, and I suspect that it might be misconstrued as only being "commercials and paid holidays for doctors"
- yodelshady 6y ago
  >which covers r&d and marketing but also the failed attempts that lead nowhere in between. How do you account for the failed attempts? As yomly alludes to, pharma startups exist because they don't own the risk - their investors bought it when they were funded. Big pharma does own the risk.
  - beagle3 6y ago
    You sum the expenditure and divide by number of successes, with some accounting for the delay. It is actually much easier than trying to figure out the cost of a specific drug, because research is sometimes shared.
- mensetmanusman 6y ago
  90% of start ups fail, so the numbers in that case would be about correct.
  - beagle3 6y ago
    No. GP said idea to product costs 1B just for r&d. That and 1B amortized over failures (and including marketing) cannot be true at the same time unless there are no failed attempts and unless marketing cost is zero.
    - Scandiravian 6y ago
      I've seen you mention marketing several times. What expenditures would you include as a marketing expense? I'm also not sure what you would define as a failure. Drug development often starts with several candidates for a target. Over the cause of development the list is trimmed, as candidates show lack of affinity for the target or have side-effects that make them unviable. Would you consider each of the excluded candidates a failure?
      - beagle3 6y ago
        > I've seen you mention marketing several times. What expenditures would you include as a marketing expense? I don't get to define that, companies do, but basically it includes everything that does not involve a lab, technician, doctor, nurse, statistician/programmer, etc. The US and the rest of the world are quite different here - if you've ever watched US broadcast in the evening, you'd see TONS of ads for prescription only medicine ("suffering from foo? Ask your doctor about bar"); that's marketing. Taking three hundred cardiologists on an all-expenses-paid 7-day cruise with one 30-minute "purely informative lecture about our new drug" and 7 days of fun? That's marketing too. Lobbying to congress? That's also marketing. Outside of the US, the marketing budgets are smaller and less overt - but the cruise-style legal bribe-like events are prevalent everywhere. > Would you consider each of the excluded candidates a failure? Possibly. You've described one style, but it's not the only one. Many times, it's a weird result from some other research (how Viagra was discovered, how DCA tests were started). But many things are essentially complete and utter failures - you have a line of research where no viable compound was found at all. BiondVax just failed a 15-year mission trying to develop a universal flu vaccine. Remdesivir is essentially failed even though it is FDA approved (It failed for Ebola; if you look at the data critically, it failed for SARS-COV-2 -- which the WHO's recent studies show even more clearly). There is some benefit from this research - new techniques, often new devices - but the drug itself is a failure in the sense that it will not generate any income to the company. Edit: just saw your earlier comment about marketing. It is those things (which you and I mentioned) and a lot more, but it is basically for the company to define in their books and a rule of the thumb would be “an expense a university department developing this to completion without expectation of profit would not have to spend”
- wbl 6y ago
  The usual course for a biotech is multiple raises as the drug progresses through trials and an early IPO. At each step investors see it as a surer shot.
jsmith99 6y ago
It's not so much the cost, it's also the delay. At a 5% cost of capital, and a 10 year lag between R&D and final approval, your real cash flows are 40% lower due to the delay. At a 10% cost of capital, they are 60% lower. Sales also take several additional years to ramp up. This doesn't apply so much to Covid vaccines, as the time frame is accelerated and demand is already high.
- Scandiravian 6y ago
  The 1bn is only the out-of-pocket cost for development and doesn't factor in for instance opportunity cost. If we include everything required to develop a vaccine, I'd imagine we're looking at something north of 2.5bn There's so many ways to calculate the cost, that I think it's more important to be aware of the assumptions made for the estimate, than the number itself (which I also failed to do in my original answer) I think people underestimate the cost of drug development, because the numbers are so big, that it doesn't seem realistic for companies to survive
Ericson2314 6y ago
> regulations have become stricter over the years Not this year!
- Scandiravian 6y ago
  Touche! :P

beagle3 6y ago

I’ve seen this number with some justification being the amortized cost of a successful product, which covers r&d and marketing but also the failed attempts that lead nowhere in between. There are plenty of 50-100M pharma startups; they wouldn’t exist if your number was right.

yomly 6y ago
>There are plenty of 50-100M pharma startups; they wouldn’t exist if your number was right. Isn't there a selection bias in that the startups that got to 50-100M survived because they were lucky with a candidate treatment. The ones that failed were the ones that never found a candidate in time? The difference being that large pharmaceutical companies have to swallow ALL the failures, whereas startups can "just" die. Not to say that pharma companies don't have some fat that can be trimmed...
Scandiravian 6y ago
"Pharma start-up" is a broad definition which might not only be drug development and there might already be work done on their product before they look for funding A company that is spun out from a PhD project in a research group, that has done a lot of the groundwork on grants will need less funding Same goes for a start-up that for instance make non-invasive assays for diagnosis, since the documentation requirements are lower for such products Producing something that has to be injected into humans is an entirely different league, since the amount of documentation required for such products is staggering The cost for marketing will vary significantly depending on your definition of the word, and I suspect that it might be misconstrued as only being "commercials and paid holidays for doctors"
yodelshady 6y ago
>which covers r&d and marketing but also the failed attempts that lead nowhere in between. How do you account for the failed attempts? As yomly alludes to, pharma startups exist because they don't own the risk - their investors bought it when they were funded. Big pharma does own the risk.
- beagle3 6y ago
  You sum the expenditure and divide by number of successes, with some accounting for the delay. It is actually much easier than trying to figure out the cost of a specific drug, because research is sometimes shared.
mensetmanusman 6y ago
90% of start ups fail, so the numbers in that case would be about correct.
- beagle3 6y ago
  No. GP said idea to product costs 1B just for r&d. That and 1B amortized over failures (and including marketing) cannot be true at the same time unless there are no failed attempts and unless marketing cost is zero.
  - Scandiravian 6y ago
    I've seen you mention marketing several times. What expenditures would you include as a marketing expense? I'm also not sure what you would define as a failure. Drug development often starts with several candidates for a target. Over the cause of development the list is trimmed, as candidates show lack of affinity for the target or have side-effects that make them unviable. Would you consider each of the excluded candidates a failure?
    - beagle3 6y ago
      > I've seen you mention marketing several times. What expenditures would you include as a marketing expense? I don't get to define that, companies do, but basically it includes everything that does not involve a lab, technician, doctor, nurse, statistician/programmer, etc. The US and the rest of the world are quite different here - if you've ever watched US broadcast in the evening, you'd see TONS of ads for prescription only medicine ("suffering from foo? Ask your doctor about bar"); that's marketing. Taking three hundred cardiologists on an all-expenses-paid 7-day cruise with one 30-minute "purely informative lecture about our new drug" and 7 days of fun? That's marketing too. Lobbying to congress? That's also marketing. Outside of the US, the marketing budgets are smaller and less overt - but the cruise-style legal bribe-like events are prevalent everywhere. > Would you consider each of the excluded candidates a failure? Possibly. You've described one style, but it's not the only one. Many times, it's a weird result from some other research (how Viagra was discovered, how DCA tests were started). But many things are essentially complete and utter failures - you have a line of research where no viable compound was found at all. BiondVax just failed a 15-year mission trying to develop a universal flu vaccine. Remdesivir is essentially failed even though it is FDA approved (It failed for Ebola; if you look at the data critically, it failed for SARS-COV-2 -- which the WHO's recent studies show even more clearly). There is some benefit from this research - new techniques, often new devices - but the drug itself is a failure in the sense that it will not generate any income to the company. Edit: just saw your earlier comment about marketing. It is those things (which you and I mentioned) and a lot more, but it is basically for the company to define in their books and a rule of the thumb would be “an expense a university department developing this to completion without expectation of profit would not have to spend”
wbl 6y ago
The usual course for a biotech is multiple raises as the drug progresses through trials and an early IPO. At each step investors see it as a surer shot.

jsmith99 6y ago

It's not so much the cost, it's also the delay. At a 5% cost of capital, and a 10 year lag between R&D and final approval, your real cash flows are 40% lower due to the delay. At a 10% cost of capital, they are 60% lower. Sales also take several additional years to ramp up. This doesn't apply so much to Covid vaccines, as the time frame is accelerated and demand is already high.

Scandiravian 6y ago
The 1bn is only the out-of-pocket cost for development and doesn't factor in for instance opportunity cost. If we include everything required to develop a vaccine, I'd imagine we're looking at something north of 2.5bn There's so many ways to calculate the cost, that I think it's more important to be aware of the assumptions made for the estimate, than the number itself (which I also failed to do in my original answer) I think people underestimate the cost of drug development, because the numbers are so big, that it doesn't seem realistic for companies to survive

Ericson2314 6y ago

> regulations have become stricter over the years Not this year!

Scandiravian 6y ago
Touche! :P